What Are Carbon Offsets and Why Should We Trade Them?

18 Feb What Are Carbon Offsets and Why Should We Trade Them?

Sterling Planet SVP Alden Hathaway – Author’s note: This is the first in a three part series talking about the science and business around carbon in the atmosphere and carbon offsets. The main concluding premise is, yes we have a problem, but it is easier to fix than people may think, will not require us to sacrifice our way of living and may actually save us money. In this first piece I talk about the science of carbon and the market-based solution already in place to solve it.

What Are Carbon Offsets – Part One

The Science of Carbon in the Atmosphere

Dr. James Hansen is said to be the father of the modern understanding of global warming science. In 1988 he explained to the US Congress that increasing concentrations of carbon dioxide (CO2) in the atmosphere were heating the Earth. He used data recorded since the late 1950’s at Hawaii’s Mauna Loa weather station to show the correlation. The science of gaseous concentrations in a planet’s atmosphere relating to the temperature of a planet has been well established in astronomy for the past several centuries. This is a matter of academics for any high school physics or astronomy student. Also known as the “Greenhouse Effect”, we have long known that higher concentrations of greenhouse gases (GHG), such as carbon dioxide, lead to higher temperatures of the planet as the GHG molecules surround and trap radiant heat from a nearby sun or star.

But in 1988, Dr. Hansen illustrated to Congress (and the World), that, as we burned fossil fuels, we humans were, in fact, changing the gaseous concentrations of Earth’s atmosphere. Increasing GHGs were heating the Earth, with potentially dire consequences. It was the first time that many of us realized that we needed to reduce our appetite for pumping these gases into the atmosphere. I can remember many rejecting outright the notion that carbon dioxide, the gas that supports all plant life including the plants we eat, as well as plants that create the oxygen we breathe, would endanger our planet. “Carbon dioxide is a good thing.” “How can more of it be a bad thing?” “Even if we must reduce our carbon dioxide emissions, is that really possible, given our lifestyles?” “Can we even afford it?”

Cap and Trade

In 1992, at the urging of several environmental organizations and many familiar with market based mechanisms including trading credits, a cap and trade mechanism was proposed for several air pollutants that were causing problems in the world. One of them, sulfur dioxide (SO2), a common emission from the combustion of fossil fuels with high sulfur content, such as coal, was causing acid rain, resulting in the destruction of fish populations in many of our northern lakes and streams. Another, pollutant, nitrogen oxide (NOx), released also through fossil fuel combustions, such as coal, natural gas, and gasoline, reacts with volatile organic compounds (VOCs) and converts to ground level ozone or smog in the sun light, making it hard to breathe for those with asthma conditions. President George H.W. Bush proposed federal and regional programs to cap and trade both SO2 and NOx under the Clean Air Act Amendments and administered by the USEPA. Leading environmental organizations such as the Environmental Defense Fund, the Union of Concerned Scientists, and the World Resources Institute advocated for the cap and trade programs to include carbon dioxide (CO2), also a byproduct of the combustion of fossil fuels, but it was not considered a pollutant in 1992 and, therefore, left out of the legislation.

Cap and trade works as follows. An overall cap on all emissions is established that covers large or “major” point sources for such emissions, typically fossil-fueled power plants. All sources must either meet the cap, or purchase credits from other point sources that are under the cap. Sources that are under the cap receive credits from the USEPA which they can then sell to the other point sources. The aggregate sales price of these credits becomes the market price for SO2 and NOx. Each year the cap level is reviewed for progress and adjusted downward, resulting in an overall lower amount of emissions in the atmosphere. Cap and trade on SO2 and NOx worked so well that acid rain was history by the turn of the century and cities with smog problems saw their air markedly cleaner before the end of the second Bush Presidency.

Voluntary Carbon Trading

Because CO2 was not considered a pollutant, the government stayed out of regulating it under a cap and trade program. Instead, a series of voluntary programs took shape led by a host of environmental organizations and consultants. The idea behind the voluntary efforts is to identify carbon reduction methodologies and to capture the resultant reduction from the atmosphere of a specified (or certified) number of metric tons of CO2. Those tonnes are then sold as carbon offsets, where one carbon offset = 1 metric ton of CO2 removed from the atmosphere or sequestered in the Earth. These offsets then may be used to reduce an organization’s (or individual’s) carbon footprint.

Measuring carbon requires an agreement to a specific protocol for that activity where carbon is reduced from the atmosphere. Different carbon reducing activities have different protocols, because carbon is reduced in different ways. For example, when counting the carbon absorbed through the practice of planting trees, one has to measure tree diameters; identify the types of tree species growing in a particular grove (because some trees grow and absorb carbon faster than others); specify a period of forest management above business as usual (eg, reducing the harvesting of trees) and other potential activities, to record measurements that will indicate additional carbon sequestration. The additional carbon measurements are submitted to a third party consultant who verifies for accuracy. Next, the carbon measurements and the consultant’s report are submitted to any one of several registries that list carbon offsets from approved projects.

Popular registries in the United States, include, but are not limited to, the Climate Action Reserve (CAR), the American Carbon Registry (ACR), The Climate Registry (TCR), and the Voluntary Carbon Standard (VCS). Other certification entities, such as Green-e offer a certified carbon offset under their Green-e Climate standard. Internationally, there are other carbon standards which may or may not interact with American registries or standards. Even with this patchwork of carbon registries and standards, there are still a considerable number of projects and, thus carbon offsets to choose from. Carbon offsets that are listed on the registries are available for purchase, and the registry listing can be used by the organization purchasing them as a kind of guarantee on the carbon amount and environmental pedigree of the carbon project.

Participating in the market place for carbon offsets ensures that one is now acting as part of the solution to reducing carbon in the atmosphere. In theory, any organization can now purchase as many carbon reductions as it wants, but certainly, there are not enough registered carbon offsets to go around if everyone began purchasing carbon offsets. However, the idea of everyone taking responsibility in accordance with their own environmental impacts implies that each of us should reduce our carbon footprint as much as possible first, then purchase carbon offsets. This can be done through energy efficiency, modest change of diet, and perhaps renewable energy and alternative fueled vehicles. Since these carbon reducing activities will likely reduce capital outlays (in terms of operating costs), it means also that a carbon reduction plan will likely produce the side benefit of significant cost savings. And, as a result, the carbon we need to offset the rest is much less and will allow those valuable projects to be used by more.

If everyone is to take responsibility in accordance with their own environmental impact, then it is necessary to do a carbon inventory before actions begin. The old saying is you cannot manage what you don’t measure is appropriate here. The identification of each organizational or individual carbon footprint is essential to achieving a valid carbon reduction plan. This we will talk about in Part 2.